Coverage: Neiman Marcus puts itself up for sale

Luxury fashion retailer Neiman Marcus Group said on Tuesday that it was exploring options, including changes to its capital structure or a sale, as it seeks relief from a swelling debt load amid renewed buyout interest from Hudson’s Bay Co.

The announcement follows a Reuters report earlier this month that the company had turned to investment bank Lazard Ltd to explore ways to bolster its balance sheet. Neiman Marcus has total liabilities of $6.4 billion, including $1.2 billion of deferred income taxes.

Hudson’s Bay, owner of the Lord & Taylor and Saks Fifth Avenue retail chains, is in exploratory talks to acquire Neiman Marcus, people familiar with the matter said. It last considered acquiring Neiman Marcus in 2013, sources said at the time.

Hudson’s Bay’s interest comes as the retail sector faces headwinds that have dented the company’s own sales and made it difficult to line up equity financing for a bid for department store operator Macy’s Inc, sources had told Reuters.

With Neiman Marcus’ bonds trading at about half their par value, a sale of the company would likely require creditors accepting a steep haircut on their holdings, making an acquisition challenging to structure and pull off, especially for Hudson’s Bay, which has market capitalization of C$2.1 billion ($1.6 billion) and net debt of $4.5 billion.

Neiman Marcus has not only given Dallas its fashion cachet, but it’s also been the catalyst for growth of a large number of local businesses. The sale or break up of Neiman’s could have ripple effects far from its downtown flagship store. Neiman Marcus has more than 4,000 employees in Dallas. The company hasn’t been owned by the Marcus family since 1969.

The store, made famous beyond Texas by the marketing genius of Stanley Marcus, has been bought and sold more times than most companies, even one as old as it is. It’s an example of how private equity deals that leverage the company for a short term investment, don’t always work out. Leveraged buyouts particularly have been rough on retailing which is undergoing a big disruption as online shopping and shipping costs have added to the expenses of traditional brick and mortar stores. In fact, Neiman Marcus has been a leader in the online space. Online sales represented 31 percent of total revenue in the holiday quarter, but it comes at a cost. Its customers have more options with the ability to comparison shop online.

During a conference call this morning, CEO Karen Katz said while Neiman Marcus remains at the forefront of luxury shopping, people are shopping less. She also said Texas stores, which had been lagging behind with lower oil prices, are doing better.

“Customers are making fewer trips to the store and the mall and more trips to the web. They want newness, exclusivity and the best price,” Katz said. “Driven by these expectations, and thanks to the information available to them on the web, more and more we are seeing our customers shop multiple stores or websites not just ours.”

The talks highlight wider troubles at department stores, which have had difficulty adjusting to the new ways that people shop, including online. Neiman Marcus, Macy’s and others have been unable to keep pace with Amazon, which has conditioned shoppers to expect low-cost goods delivered quickly. Traditional high-end retailers also face increasingly strong competition from off-price physical stores like T. J. Maxx.

“I look at this just as moving the deck chairs around on the proverbial Titanic,” Mark A. Cohen, the director of retail studies at Columbia Business School, said about a potential merger between Hudson’s Bay and Neiman Marcus.

As part of a financial disclosure, Neiman Marcus said on Tuesday that it was evaluating its strategic options. Burdened by about $5 billion in debt and slumping sales, Neiman Marcus said a potential sale of itself was among the avenues being explored. The company did not respond to requests for comment.

In a statement, Hudson’s Bay said it did not discuss “market rumors.” But it added, “Generally speaking, as we have previously stated, we selectively evaluate opportunities to accelerate the company’s strategic growth while maintaining or enhancing its credit profile.”

Hudson’s Bay had also been discussing a potential merger with Macy’s, another retailer facing weak sales. The talks with Neiman Marcus, however, appear to be more serious, the person briefed on the discussions said.

Neiman Marcus said in its disclosure that it had not set a timetable to evaluate its options.

Chris Roush is the Walter E. Hussman Sr. Distinguished Professor in business journalism at UNC-Chapel Hill. He is a former business journalist for Bloomberg News, Businessweek, The Atlanta Journal-Constitution, The Tampa Tribune and the Sarasota Herald-Tribune. He is the author of the leading business reporting textbook "Show me the Money: Writing Business and Economics Stories for Mass Communication" and "Thinking Things Over," a biography of former Wall Street Journal editor Vermont Royster.